Strategic Management for Microsoft Nokia and Apple Inc - Case Study Example

Business and Management (Strategic Management) Table of Contents Table of Contents 2 Introduction 3 1.Background and Context 3 1.2.Methodology 3 1.3.Case Studies 3 1.3.1.Microsoft Nokia 3 1.3.2.Apple Inc. 4 2.Critical Analysis 4 2.1.Applying Strategic Models 4 2.1.1.Porter’s Generic Strategies 4 2.1.2.Bowman’s Strategy Clock 7 2.1.3.McKinsey’s 7-S Framework 10 2.2.Critique ofthe Three Analytical Processes 13 3.Conclusion 14 References 16 1. Introduction 1.1. Background and Context One of the fastest growing segments is the smartphone segment. Globally, the leading brands in this segment include Samsung, Apple, and Microsoft Nokia among others. This segment has been very dynamic. At some point, Nokia was the leading brand in feature phones. However, this has now changed with Apple and Samsung being the industry leaders. The purpose of this essay is to critically analyse the strategies of two of the leading telecommunication companies using three analytical processes including Porter’s Generic Strategies, Bowman’s Strategy Clock, and McKinsey’s 7-S Framework to understand the strengths and weaknesses of their strategies. The three analytical processes are chosen because they present in-depth methods of analysing a firm’s generic strategy as well as the alignment of the internal elements of a firm to its generic strategy. Therefore, using the three analytical processes would be crucial in achieving the desired goal of this critical analysis. 1.2. Methodology To meet the purpose, two telecommunication companies will be evaluated using three strategic management processes (Porter’s Generic Strategies, Bowman’s Strategy Clock, and McKinsey’s 7-S Framework). The three models will be critically assessed in terms of how effective they are in analyzing the strategies of the two companies. 1.3. Case Studies 1.3.1. Microsoft Nokia Nokia traces its history to 1865 when it was founded in Finland. The company adopted the name Nokia just six years later in 1871. After a major merger in 1967, Nokia adopted its current name Nokia Corporation. The period of the 1990s marked Nokia’s exponential growth to become the leading manufacturer of feature phones (Nokia, 2014a). Nokia started losing its top position with the introduction of smartphones by competitors in the first decade of the 21st century. Since then, Nokia has been struggling to regain its leadership position in the industry but in vain. In 2011, Nokia announced a strategic move to revitalize itself by merging with Microsoft with the aim of producing Nokia smartphones that would run on Windows operating system. 1.3.2. Apple Inc. Apple was started in 1976 and was incorporated a year later. For over two decades since it was formed, the company specialized in the production of personal computers. However, challenges of limited market share and poor sales caused the company to change its strategy and introduce new products and services. These include the iPod music player and iTunes. However, Apple made a major move when it started producing smartphones and Tablets. The company’s smartphone product, Apple iPhone, has become a favourite smartphone brand in the world. The iPhone, which was first introduced in the year 2007, became an instant hit. With the iPhone, Apple rose to become the leading smartphone company in the world. However, it was later replaced at the top position by Samsung Electronics. Today, Apple is the second largest manufacturer of smartphones in the world (Eddy, 2014; Bora, 2014). 2. Critical Analysis 2.1. Applying Strategic Models 2.1.1. Porter’s Generic Strategies The Porter’s generic strategies model is a tool for strategic evaluation of a firm’s competitiveness. It is based on two competitive factors, which are cost leadership and differentiation. According to the model, companies can apply either of these competitive strategies at a narrow level of a broad scope. The scope of applying either the differentiation or cost leadership strategy creates the focus. Therefore, based on Porter’s generic strategies, companies can choose from the three generic strategies including differentiation, cost leadership, and focus (Lotayif, 2010: 216; Sengupta, Bhattacharya & Sengupta, 2006: 120; Kossowski, 2007: 5). The Porter’s generic strategies model is illustrated in the diagram 1 below. Diagram 1: Porter’s Generic Strategies Source: Hwy-chang (2010: 8). 2.1.1.1. Applying Porter’s Generic Strategies to Nokia Nokia is applying the differentiation strategy. Just recently, Nokia decided to merge with Microsoft in an effort to revitalize itself with the production of Lumia smartphones. Through this merger, Nokia was able to differentiate itself from other smartphone producers such as Samsung and Apple. Specifically, almost every smartphone in the market today runs on the Android platform except Apple’s iPhone. Nokia did not choose to follow suit but opted to differentiate by using a new platform, the Windows operating system, which had never been witnessed before. However, Nokia also adopted the broad focus strategy with its Nokia Lumia smartphones. Compared to Apple’s iPhone, the Nokia Lumia smartphones are much cheaper. The price variability among the different Lumia models is wide, which means that Nokia wanted to cater for a wider market ranging from the low-income to high-income customers. Generally, Nokia adopts a differentiation strategy at a broader level in terms of product features (new operating system and wireless charging) as well as merging with Microsoft. Other smartphone companies such as Apple Inc. operate alone. 2.1.1.2. Applying Porter’s Generic Strategies to Apple Apple Inc. is a premium brand. The company’s iPhone smartphone is among the most expensive smartphones available in the market. The iPhone products are highly priced because Apple Inc. too has adopted a differentiation strategy. By adopting a premium pricing strategy, Apple is differentiating itself from other smartphone manufacturers whose pricing is not premium especially Samsung Electronics and Nokia among others. However, with the premium pricing, Apple Inc. differs from Nokia in the differentiation scope. Apparently, Nokia targets a narrow scope of the high-income customers who can afford to pay the premium prices to have the iPhone. The low-income and lower middle-income customers may not be able to afford an iPhone. Apple knows this too well and that is why it is targeting a narrow segment of the overall market. This narrow scope of differentiation is evident even in the distribution strategy of Apple Inc. Unlike most of its rivals, Apple has a vertically integrated distribution system where it mainly distributes its products through Apple stores located across the world. Although the company also uses some external distributors, it is so selective in choosing these distribution partners. The company tends to use distribution partners that match its target market, the high end customers. 2.1.2. Bowman’s Strategy Clock The Bowman’s strategic clock is based on the Porter’s generic strategies model. it is an extension of the latter in the sense that it uses the same cost and value dimensions to come up with eight strategies that a company may adopt (Evans, Stonehouse & Campbell, 2012: 220). As illustrated in diagram 2 below, this model for strategic analysis comprises of eight strategic positions. These strategic positions are based on the combination of the differentiation, cost leadership, and focus strategies (Johnson et al., 2014). Diagram 2: Bowman’s Strategic Clock Source: Voropajeva (2012: 12). Position 1 – this position represents a low cost-low value strategy. This position is undesirable because of the low perceived value of products or services, which drives prices down. Position 2 – this position involves low cost leaders. Companies adopting this strategy keep their costs down, which enables them to sell their products at lower prices. Position 3 – this is the hybrid strategy. Companies that apply this strategy offer higher product values at lower costs, which is an effective recipe for building customer loyalty. Customers are assured of value despite the low prices. Position 4 – this is the differentiation strategy. This strategy requires companies to create higher perceived value compared to competitors. However, to be sustainable in terms of profits, these companies need to increase prices or increase volumes. Position 5 – this is the focused differentiation strategy that involves offering higher perceived value at high prices. This strategy only targets a narrow segment of the market especially the high end customers. Position 6 – this strategy entails increasing prices without increasing value. This is like a bargain because it may work or not. If it works, companies benefit from increased profits. However, in most cases this benefit is only short-lived. Position 7 – this is a monopolistic strategy where a company is the only one operating in an industry or sector. Therefore, the company can increase prices since customers have no options. Position 8 – this strategy lead to a loss of market share. Without product value, it is almost impossible to charge high prices. 2.1.2.1. Applying Bowman’s Strategic Clock to Nokia From the eight generic strategies identified in Bowman’s strategic clock, Microsoft Nokia seems to fit well within the differentiation strategy/position 4. From the model, this generic strategy entails offering higher perceived product value than competitor products while maintaining lower price levels. One of the main internal strengths of Nokia is its high quality products. Nokia has been known for producing high quality products for many years. Even to date, the company is still considered as a high quality brand. Therefore, customers tend to have higher product value expectations from Nokia. Compared to rival companies such as Samsung, Motorola, and Tecno, Nokia comes top in terms of customer value expectations due to its association with high quality products. With regard to pricing level, Microsoft Nokia is a mid-range telecommunication company. The company targets the middle-income customers with its range of products. Compared to competitors such as Apple Inc., Nokia’s pricing is lower. On the other side, compared to competitors such as Tecno, Nokia’s pricing is higher. This means that the company’s pricing level is mi-range. This corresponds to the pricing level for the differentiation strategy in Bowman’s strategic clock. 2.1.2.2. Applying Bowman’s Strategic Clock to Apple Apple Inc. fits well under the focused differentiation strategy in Bowman’s strategic clock. Under this generic strategy, there is a combination of high perceive customer value and high price levels. It is important to note that the high value does not have to be real. It can be purely based on perception such as based on a strong brand. This is exactly what Apple Inc. applies. The apple brand is one of the strongest and most valuable in the telecommunications industry. Amazingly, the Apple brand is the most valuable brand in the world. With a brand value exceeding $100 billion, Apple is one of the only two brands that have exceeded the $100 billion mark (Kottasova, 2014; Forbes, 2014; Crum, 2014). With such a high brand value, Apple Inc. is largely associated with high product value by consumers. Moreover, the iPhone provides a unique experience to consumers. This explains why every time Apple releases a new version of iPhone it attracts worldwide attention. In fact, customers often book in advance even though the new product is yet to be released (see Bonto, 2014). In terms of pricing, Apple applies the premium pricing strategy (Seitz, 2013; Cox, 2013).Compared to its greatest rival, Apple Inc. sells its products at higher prices. Apple is able to apply the premium pricing strategy because of its focused differentiation. Rather than targeting the general market, the company specifically targets the high-end consumers who have the purchasing power to afford premium products. This narrow focus plus the strong brand enables the company to set higher prices, which gives the company higher profit margins. 2.1.3. McKinsey’s 7-S Framework The McKinsey’s 7-s model is a common model for strategic analysis of companies. This model is based on the belief that a company could only be successful if its internal processes are well aligned. The model identifies seven internal factors that are important for every organization to align (Sekhar, 2009: 72; Johnson et al., 2014). The seven factors are categorized into hard and soft elements. The hard elements include structure, strategy, and systems. The soft elements include skills, shared values, style, and staff. The model is illustrated in diagram 3 below. Diagram 3: McKinsey’s 7-S Framework Source: Joseph & Mohapatra (2009: 60). Structure–refers to the organizational structure in terms of command structure and relationship between departments (Waterman, 1982: 71). Strategy – refers to specific plan that a company adopts to establish competitive advantages and achieve objectives (Waterman, 1982: 71). Systems – refers to the processes that employees of an organization undertake to meet the organizational objectives (Waterman, 1982: 71). Skills – refers to the set of skills and capabilities of the employees (Waterman, 1982: 71). Shared values – refers to the core values that form the basis of an organization’s culture (Waterman, 1982: 71). Style – refers to the leadership and management style within a company (Waterman, 1982: 71). Staff – refers to the workforce of an organization (Waterman, 1982: 71). 2.1.3.1. Application of McKinsey’s 7s on Nokia Structure –Nokia has a simple organizational structure comprising of three business segments, which report to a single authority, the CEO (Nokia, 2014b). Strategy –Nokia’s strategy is to meet the demands of a wider market through production of high quality and unique products and services especially after the merger with Microsoft. Nokia aims to regain its lost glory. Systems –normal operations are Nokia are well organized. Employees understand their roles well. Skills – Nokia has a skilled workforce with experts in diverse fields. Shared values – the shared values at Nokia include renewal, challenge, achievement and respect (Nokia, 2014b). Style – In April 2014, Nokia appointed Rageev Suri as the new CEO replacing the former CEO Stephen Elop (Fried, 2014). Elop’s tenure had resulted in Nokia merging with Microsoft, a major strategic move for the company. Although Elop is partly blamed for Nokia’s loss of market share, the overall management team shares this responsibility. However, with the new CEO, Nokia may be setting itself up for a major revamp. Staff–Nokia has a global workforce of 48, 628 employees (Nokia, 2013). From the analysis of Microsoft Nokia, the overall observation is that the company has a high level of alignment among the seven internal factors. However, there seems to be a poor alignment of the leadership/management style. Even with the appointment of a new CEO, the company may take longer to find a better management that will support the overall strategy of the company. The decision to sell part of the company to Microsoft will make this difficult. It should be noted that this decision was reached at by the management of the company led by the immediate former CEO. 2.1.3.2. Application of McKinsey’s 7s on Apple Structure – the organizational structure ay Apple is rather horizontal. Although there are different levels of hierarchy, employees are given so much autonomy. This creates a flat structure. Strategy – Apple’s strategy is based on innovation to meet the needs of its target market. The company seeks to develop innovative products and services that will exceed the expectations of its target market. Systems – daily operations at Apple are run normally with each employee having a role to play. The company motivates employees to be innovative. Skills –Apple selects the best employees in terms of skills and innovativeness. The company has a tendency to prioritize individual abilities rather than academic documents. Shared values –teamwork, innovation, and accountability are part of Apple’s core values. By combining the unique expertise of each employee, the company creates a synergy that drives the corporate culture and performance (Apple Inc., 2014) Style – leadership at Apple has been one of the strongest elements of the company. The company founders, especially the late Steve Jobs, were visionary leaders who succeeded in creating a successful company. Steve Job’s legacy still remains in the company. Staff –Apple has over 98,000 employees comprising of individuals from diverse backgrounds and working in different parts are geographic regions (Cook, 2014). Overall, the McKinsey’s analysis of Apple shows that the company’s has a great internal alignment of the several elements. This supports the view that Apple is one of the top brands in the telecommunication industry. The company’s strategy is supported by an effective leadership, a skilled and capable team, and a strong organizational culture supported by the shared values. 2.2. Critique ofthe Three Analytical Processes The three analytical models have been effective in analysing the two companies. However, each of the process had its own advantages and disadvantages as discussed below. 2.2.1. Advantages and Disadvantages of Porter’s Generic Strategies The Porter’s generic strategies model was effective in identifying the specific generic strategies that Nokia and Apple apply. From the analysis, it emerged that Nokia used the differentiation strategy at a broader scope while Apple applied the same strategy but a narrow scale. The main disadvantage of this analytical process is the simplification of a firm’s generic strategies. The model identifies only four generic models that firms can use. This leaves out other generic strategies that fall outside these four major generic strategies. For example, although the strategy identified Apple’s strategy as being differentiation on a narrow scale, it did not highlight that high value aspect of Apple brand. 2.2.2. Advantages and Disadvantages of Bowman’s Strategy Clock The Bowman’s strategy clock confirmed the findings from the Porter’s generic strategies. However, this strategic tool was more detailed in the analysis. It emerged that Nokia was applying the differentiation strategy by creating a high product value while maintaining mid-price levels. On the other hand, Apple was applying the differentiated focus strategy by providing high value products at premium pricing. This analytical process did not have any major disadvantage. The only challenge in applying the model is that it can be quite complex. This is especially so when it is used to analyse more than one firm at the same time as it was the case in this assignment. 2.2.3. Advantages and Disadvantages of McKinsey’s 7s Framework The McKinsey’s 7s framework was effective in analysing the internal alignment of the two companies to support their generic strategies. Unlike the other two analytical models, the McKinsey’s model focused more in the internal alignment rather than on the generic strategy. This provides a new angle into the strategic analysis process of the two telecommunication companies. From the application of this analytical tool, it emerged that Apple has a better internal alignment than Nokia. With regard to disadvantages of this analytical process, one of the main disadvantages is its complexity. The analysis entails considering seven different elements of a firm, which is quite a complex task. Moreover, the seven internal elements are interrelated, which makes their distinction difficult. For example, it was quite difficult to differentiate the skills and staff elements in both Nokia and Apple because they seemed similar. Comparing the three analytical tools, the conclusion is that all the three have been effective in analysing the two companies strategically. However, the Bowman’s strategy clock was more detailed than Porter’s generic strategies. As for the McKinsey 7s framework, this process had a different focus than the other two. In terms of complexity, the Porter’s generic strategy was the least complex followed by Bowman’s strategy clock and then McKinsey’s 7s framework. 3. Conclusion The strategic analysis of the two telecommunication companies using the three analytical processes has been successful. From the overall analysis, it has emerged that Apple Inc. is better in terms of strategic approach and alignment than Microsoft Nokia. The differentiated focus that Apple applies enables the company to meet the needs of its target market better, which creates customer loyalty. Moreover, the high product value perception created by the company enables it to charge premium prices for its products, which increases the company’s profit margins. This explains why Apple is one of the leading telecommunication companies and brands in the world. On the other hand, Microsoft Nokia has adopted a differentiated strategy but on a wider scale. This strategy is aimed at helping the company regain its lost glory in terms of market share. The strategy is appropriate for the intended purpose. However, the company lacks a proper internal alignment to support this strategy. The leadership of the company is not well aligned with other aspects to support this generic strategy. This implies that Nokia needs to relook into its internal environment and ensure that it aligns all critical aspects such as leadership. The merger with Microsoft may be the problem. Therefore, the two companies needs to align their strategies to create a synergetic approach that will not confuse consumers. Finally, this strategic process has had several important lessons. The first major lesson is that companies need to evaluate their internal environments well before adopting a generic strategy. Apple and Nokia understood their internal strengths and weaknesses before choosing their respective strategies. For example, Nokia realized that it needed a boost from Microsoft to create a differentiation strategy. The other major lesson is that ensuring internal alignment is important for the success of a particular strategy. Although Nokia and Apple have adopted good strategies, Apple is doing better than Apple because it ensured proper internal alignment unlike Nokia. References Apple Inc. (2014) ‘Jobs at Apple’ [Online] Available at: https://www.apple.com/jobs/us/corporate.html [Accessed 28 Nov. 2014]. Bonto, M. 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